Silk Way Renaissance in Kazakhstan

Since its independence in 1991, Kazakhstan has moved decisively to be among the top 50 economies in terms of the ease of doing business and overall economic freedom. On May 23, I joined President Nursultan Nazarbayev of the Republic of Kazakhstan, Prime Minister Dato Sri Mohd Najib bin Tun Abdul Razak of Malaysia and Muhammad Yunus, professor of economics, founder of the Grameen Bank and laureate of the Nobel Peace Prize in 2006 in Astana for a discussion about future prospects in Kazakhstan for entrepreneurs.

Both regionally and globally, Kazakhstan outperforms many nations. In the Index of Economic Freedom, it ranks 11th out of 42 countries in the Asia–Pacific region, and its overall score is above the world and regional averages. Kazakhstan is also the top country in the “Europe and Central Asia” region in the World Bank’s assessment of ease of paying taxes.

As in most rising nations, key challenges are now in realms beyond regulatory efficiency. Rule of law, as measured by enforcement property rights, judiciary independence and checks on corruption, stands among one of the top challenges for the country to diversify growth beyond the traditional oil and uranium sectors.

A tangible commitment to deep structural reforms remains to be seen, but dialogue with a clear articulation of an entrepreneurial future for the country has begun, and can be seen in the country’s 2050 Strategy and Business Road Map 2020 program. For example, Kazakhstan's Prosecutor General and the National Chamber of Entrepreneurs have signed a Memorandum on Cooperation to prevent the violation of entrepreneurs' rights. Prosecutor General Askhat Daulbayev said the protection of entrepreneurship is a priority, mentioning the 11,000 prosecutorial business protection investigations conducted in 2013, and the 2,500 halted “unreasonable” inspections of business subjects, among other activities aimed at protecting entrepreneurs.

President Nazarbayev in turn warned that a number of state bodies risk being dissolved if they conduct unreasonable business inspections. Anofficial “who slips his hands into the pocket of business, is not just a corrupter, but the enemy of the country,” said President Nazarhbayev.

Backing his words, he has signed a decree declaring a moratorium on inspections of small and medium-sized businesses, from April 2, 2014 until January 1, 2015. The aim of this measure is to give government time to design and implement a new legislative framework that will improve the business environment for Kazakh entrepreneurs, the president explained. His government has also worked to reassure foreign investors. At the Asian Development Bank’s 47th annual board of governors meeting held in Kazakhstan on May 4, President Nazarbayev announced a new bill that would exempt investors from corporate income tax for ten years, and ease the processes of bringing foreign labor into the country.

Clearly, President Nazarbayev, now in his fifth five-year term, is challenged to build a culture supportive of these measures to turn entrepreneurship from a mandate into a mindset.

I sense from my conversations with young Kazakhs that the post-Soviet generations are doing their part and not waiting for the government to solve all of their problems. Less interested in politics, young Kazakhs are pragmatically looking after their economic future by turning their ideas and skills into tangible market solutions that tap into the country’s growing middle class and foreign market connections in China, Europe and new avenues now as part of the Eurasian Economic Union (Russia and Belarus markets). It is clear Kazakh youth find more commonalities with their entrepreneurial peers abroad than with their elders in the local, traditional business community.

While the entrepreneurial mindset still faces some resistance in smaller cities, where the word entrepreneur still connotes a negative image of a selfish merchant, public opinion surveys conducted in 2007, 2012 and 2013 in Kazakhstan reveal a young generation more optimistic about their future, confident that their intelligence, skill and hard work would be rewarded.

Pavel Koktyshev, director at the Institute for Development and Economic Affairs (IDEA), and CEO and co-founder at the Young Entrepreneurs Club of Kazakhstan, has been leading transnational initiatives through GEW to enable just that, by connecting local entrepreneurs to the global startup movement. With 82 percent of survey respondents in Kazakhstan saying they have firm plans for opening a business over the next two years, Pavel plans to build out a leadership team to more formally establish the must-have elements of a startup ecosystem.

For example, beyond the youth networks, other actors in the Kazakh entrepreneurship ecosystem include: the Damu Entrepreneurship Development Fund that invited me to Astana and its business advisor program now active in all regions of Kazakhstan, a growing pool of female entrepreneur role models, the National Chamber of Entrepreneurs of Kazakhstan which has a strong lobby power, a supportive media which was very active during my visit, the Kazex Invest government agency tasked with promoting non-resource exports, the Entrepreneurship Development Policy Department at the Ministry of Regional Development, the emerging circles of angel investors (e.g. Atameken Startup Fund) and venture capitalists appearing at gatherings like Investorday, Startup Weekend, Global Entrepreneurship Week events, and the Young Entrepreneurs Club’s “Business Tuesdays”. These local investors are also increasingly connecting with investors from abroad.

Part of the new effort will involve “mapping” this nascent ecosystem, defining gaps and coordinating the main actors (existing startup communities, government agencies, banks, VC and angel groups, universities, corporations) in order to foster dialogue about how to strengthen it. While I was in Astana, I met with some of them including the CEO of the main telecom company, Kazakhtelecom, the team behind the Expo coming to Astana, the Dean of the Business School - NUGSB and Galiya Joldybayeva at the Ministry for Regional Development who chairs the Committee on Entrepreneurship Development.

In these discussions, I learned about the Bolashak program that awards scholarships to high-performing students from Kazakhstan to study overseas, provided that they return to Kazakhstan to work for at least five years upon graduation. Many have returned to occupy leadership positions in the government and prominent private entities but the challenge ahead is to have more of them import new firm culture into the country. Current efforts to strengthen the education system and infrastructure hope to help attract high-skilled Kazakh professionals abroad back to the country as entrepreneurs, business mentors or investors. Filling obvious gaps in the current ecosystem will be vital to achieve this goal.

Kazakhstan’s success in using new entrepreneurs to diversify its economy that has been so dependent on oil will be an important example for other Eurasian economies that are not as far along in leveraging the power of new firm founders. Next week, I will write about a new initiative to foster fast sharing of smart policy ideas from startup savvy domestic policymakers across the planet. While the regulatory barriers to new firm entry vary from country to country, countries like Kazakhstan do not have to reinvent the wheel.